How to Prepare Bank Reconciliation Statement (BRS) ? | Purpose of BRS with Example

A Bank Reconciliation Statement (BRS) is a statement prepared to reconcile the difference between the balance of cash at the bank as per the bank statement and the balance of cash at bank as per the company’s cash book. It is a process of comparing the company’s cash book balance with the bank statement balance, identifying any differences, and adjusting the cash book balance accordingly.

The Bank Reconciliation Statement (BRS) is an essential tool used by companies to ensure that the cash book balance and bank statement balance match. It is a process that helps to identify any errors, omissions, or fraudulent transactions that may have occurred in the company’s bank account.

What is the purpose of preparing a Bank Reconciliation Statement (BRS)?

The main purpose of preparing a Bank Reconciliation Statement (BRS) is to ensure that the balance of cash at bank as per the company’s cash book matches the balance of cash at bank as per the bank statement. Some of the other reasons why a BRS is prepared are as follows:

1. Detecting Errors and Fraud: A BRS helps to detect errors and fraud in the company’s bank account. If there is a discrepancy between the cash book balance and the bank statement balance, it could indicate that there has been an error or fraud in the company’s bank account.
2. Preventing Overdrafts and Bank Charges: A BRS helps to prevent overdrafts and bank charges by identifying any uncleared cheques, bank errors, or other transactions that have not yet been processed by the bank. This information can be used to avoid making payments or issuing cheques that would result in overdrafts or bank charges.
3. Improving Cash Management: A BRS helps to improve cash management by providing an accurate and up-to-date picture of the company’s cash position. This information can be used to make informed decisions about cash flow, investments, and other financial matters.

Preparation of Bank Reconciliation Statement (BRS) with Adjusting Cash Book:

Illustration: 

The balance of cash at bank as shown in the Cash Book of Sahil & Co. on 31st December 2021 was ₹8,200. On comparing it with the pass book, the following differences were noted:

1. Cheque sent for collection amounting to ₹6,400 have not been cleared by the bank so far.
2. Cheque issued but not presented for payment ₹4,000.
3. Bank charges ₹200 not entered in the Cash Book.
4. Credit of ₹500 in the pass book in respect of interest was not recorded in the Cash Book.
5. A vendor deposited ₹2,000 directly in our bank account, which was only recorded in the pass book.
6. As per standing instructions of Sahil & Co., the bank has made the following payments:

• Insurance premium : ₹1,200
• Club Fees : ₹1,000

Prepare a Bank Reconciliation Statement as on 31st December, 2021. 

Solution:

Preparation of Bank Reconciliation Statement (BRS) without Adjusting Cash Book:

Illustration:

Prepare Bank Reconciliation Statement as on 31st March 2023 with the help of the following information:

1. Bank balance as per Pass Book : ₹12,600
2. Cheque received and recorded in the Cash Book but omitted to be banked ₹4,900
3. Debit side of the bank column of the Cash Book was undercast by ₹200
4. ₹2,500 was wrongly credited by the bank
5. Cheque of ₹5,120 was deposited into the bank but omitted to be recorded in the Cash Book
6. Bill discounted and dishonoured was not recorded in the Cash Book ₹6,800
7. Bank charges were not recorded in the Cash Book ₹440
8. Bank allowed interest ₹650